Lehigh Valley banks find parochial principles pay off

The nation's banking crisis has troubled such financial institutions like Wachovia and Sovereign, two large banks heavily tied to the Lehigh Valley.

Others, like some community banks, are seeing the times as an opportunity to gain customers.

Founded on the principles of locally invested, community-involved, and building personal relationships, many local banks are touting such qualities and bolstering their number of branches as they seek to gain new customers and strengthen the divide between their institution and their larger counterparts.

One bank in particular that is taking this opportunity to play up these contrasts is Embassy Bank, based in Hanover Township, Northampton County. The bank has been advertising on roadway billboards its ability to forgo any federal bailout funding and focus on being invested in the Lehigh Valley. The company is now looking to stretch its local roots by adding three additional branches within the year, an aggressive capital project that will bring the company's total to seven branches.

''I think the Valley has a lot to offer,'' said Dave Lobach, Embassy's president. ''Bigger, bigger and bigger was the way it was in the '80s and '90s and the new millennium and not necessarily was it the necessary at the end of the day. We know what our niche is in the Valley and we want to continue to be good to the Valley.''

Embassy, started in 2001 by a group of local investors, is looking to grow its market share in the midst of a historic banking crisis that has been fueled by the subprime mortgage problem. The troubled times have forced many large financial institutions to tighten lending requirements and others like Wachovia and Sovereign to merge with other banks to stave off their demise.

Lobach said Embassy has been affected by the recession like many of its counterparts, but they have not closed their lending purse and continue to focus on building relationships with their customers. He added that the way the company avoided the banking fiasco is by followed conservative lending standards and avoided risky lending practices that fueled the real estate boom, echoing what many other local bank owners have said.

Jay Brew, chief executive officer of BNK Advisory Group, a local community bank research company, said community banks are showing they can fill the void created from larger banks cutting back on lending and services.

Brew is also on Embassy's board of directors.

''The larger banks are not competitive on rates and the service of smaller banks because they are dealing with a lot of other issues out there,'' Brew said. ''Larger banks are closing on customer credit cards and they are cutting available credit and crippling home equity lending to get around their risk profile.''

Brew added that many of the nation's community banks are passing up federal bailout funding because they have strong capital positions and are not heavily entrenched in bad investments as their larger counterparts.

A June 30, 2008, report by the Federal Deposit Insurance Corp., said Embassy Bank ranked 10th in the Valley, out of 23 institutions, with more than $270 million in local deposits and 2.6 percent of Lehigh Valley market share.

The Valley is largely held by Wachovia, which is ranked number one and has about 28 percent of the region's market share and $2.9 billion in local deposits. Wachovia merged with bank Wells Fargo last year. Sovereign, which is fifth in the region, holds more than $700 million in local deposits. Sovereign was sold to the Spain's largest banking company, Banco Santander Central Hispano, for $1.9 billion.

Local banks control about 25 percent of the Valley's deposits. That includes New Tripoli, Team Capital Bank, Lafayette Ambassador and Merchants Bank of Bangor, a community bank with 10 branches and more than $200 million in Lehigh Valley deposits.

Merchants has said that there has seen an uptick in deposits and customers fleeing to them from larger banks.

Bethlehem economist Kamran Afshar said Embassy is taking a calculated risk by growing as many larger banks are downsizing.

''They can take the place of those other companies and they can be successful in growing when others are withdrawing,'' he said. ''It's the way the capitalism system works -- it gets rid of the weaker and helps the better get better.''

Embassy Bank is not the only local bank to be growing in the recession. Team Capital, which saw its local deposits almost double to $112 million in the FDIC's report, added a branch in South Whitehall and Phillipsburg at the end of last year.

Other banks to undergo local expansion include TD Bank, which purchased Commerce Bank last year. TD is seeking state approval to open a branch in Hanover Township, Northampton County. In addition, Woodforest National Bank, headquartered in Texas with dozens of locations in Pennsylvania, is looking to open its first branch in the Lehigh Valley.

As for Embassy, Lobach said the institution has remained committed to the Lehigh Valley and does not have any plans to expand beyond those boundaries.

''What we have been doing is right for the customers and yes we are looking to expand in the Lehigh Valley and fill that void created by other banks,'' he said.